Overview of major business tax measures in Budget 2024
Corporate Tax Alert | Business Tax alert
On 9 October 2023, Belgium’s federal government reached an agreement regarding Budget 2024. The agreement contains several corporate tax measures, including proposed amendments to the controlled foreign company (CFC) regime and certain anti-avoidance measures, and a proposed tightening of the “Cayman tax.”
Budget 2024 will need to be converted in a pre-draft bill, which must be approved by the Council of Ministers before being submitted to the House of Representatives.
These measures are expected to enter into force as from 1 January 2024, although this is not explicitly stated in notifications concerning the agreement.
CFC regime transition to Model A
In 2016, the EU Anti-Tax Avoidance Directive introduced CFC rules, resulting in the inclusion of undistributed income of low-taxed foreign subsidiaries in the tax base of Belgian resident companies. The directive allows member states to choose between two approaches. Belgium initially had adopted the “soft” approach (Model B) to minimise the impact on its holding companies; however, Budget 2024 now proposes the adoption of the “hard” approach (Model A).
Model A presumes that undistributed passive income of a CFC is included in the Belgian tax base, with provisions for exemption if the CFC can demonstrate substantial economic activity. Passive income includes income from various financial and investment sources.
Budget 2024 also introduces measures to prevent double taxation and includes exemptions related to passive income from a CFC's earnings and financial undertakings with Belgian taxpayers or their associated enterprises.
Amendment of anti-avoidance measures
In response to case law of the Court of Justice of the European Union (CJEU), the federal government has proposed in Budget 2024 amendments to certain anti-avoidance measures that are designed to counter international tax planning by Belgian companies to shift taxable profits to jurisdictions with privileged tax regimes.
The proposed amendments focus on articles 54 and 344 section 2 of the Income Tax Code. Article 54 restricts the deduction of interest, royalties, and remuneration paid to companies benefiting from privileged tax regimes, while article 344 section 2 contains a “nonopposability” regime for transfers of assets to companies benefiting from privileged tax regimes (i.e., the tax authorities may disregard such transactions in certain situations).
In order to address the CJEU’s concerns, Budget 2024 proposes to amend articles 54 and 344 section 2 so that only transactions between related companies and where assets are transferred to a foreign company that pays less than half of the tax that would be due if the foreign company were a Belgian company would be affected. The proposed amendments include the addition of criteria for mutual interdependence, the allowance of taxpayers to demonstrate effective corporate taxation, modifications to the evidence required, and the extension of the scope of the rules to include both direct and indirect transfers abroad.
Tightening of the Cayman tax
Budget 2024 also includes a proposal to reinforce and tighten the “Cayman tax.” This tax was introduced in 2013 with the aim of preventing Belgian residents from obtaining a tax advantage by holding assets in low-taxed entities. Since then, the Cayman tax has evolved from a simple reporting obligation to fiscal transparency and a tax on distributions (i.e., look-through taxation). Over the years, the legal arrangements within the scope of the Cayman tax have been extended significantly.
Reportedly, the federal government found inspiration in the recommendations made by the Court of Audit earlier this year (Dutch | French) to further tighten the Cayman tax. Budget 2024 would, inter alia, provide for an exit tax in cases of relocation abroad, a rebuttable presumption for ultimate beneficial owner registry holders, and major changes to prevent tax evasion or “advantageous Cayman situations.”
Annual financial services industry taxes no longer tax deductible
Under Budget 2024, the annual financial services industry taxes on credit institutions, collective investment schemes, and insurance companies would no longer be tax deductible (art. 198, §1, ITC 92).
Enhanced compliance and stricter audits
Budget 2024 provides for stricter audits and control of nonprofit entities’ special corporate tax regimes.
Tax measures affecting the real estate sector
Budget 2024 includes various measures affecting the real estate sector. For more information in this respect, please refer to the following alerts:
Key tax measures in the Budget 2024 agreement affecting the real estate sector
